‘Tis the season to benefit from competitive travel credit card deals. Unfortunately, travel credit card traps are also part of the summer folly.
You may have already been stung by the many teaser fees on offer at this time of year. A teaser fee is a no or low fee introductory offer which typically expires after a few months or year. Even if you do read the fine print, in 12 months’ time you may have forgotten about the increase in fees.
Following are other credit card snags more likely to entrap summer travelers.
Foreign Exchange Fees
Many of the top travel credit cards wave foreign exchange fees. Because foreign exchange fees are a variable cost – currency exchange rates change daily – they introduce an unknown cost to your travel budget. Consider the fluctuating Euro-US dollar exchange rate. Today, you would spend $1.12 for every Euro you spend on your summer vacation. In the summer of 2013, you would have paid $1.30 for every Euro. The 18% loss in the value of a dollar easily would have eroded any gains from credit card bonuses and rewards.
Travel-related hidden fees hit credit card users the hardest because they are not aware of them until they go traveling. These charges may include a fixed international transaction fee and international ATM withdrawal fees, which can be high when making withdrawals in foreign countries.
Cash Back Credit Cards
Cash back can be a more attractive option than travel rewards. Priority seating and hanging out in the lounge are nice, but cash you can spend wherever you like and even put it in the bank to earn interest. Though with cash back cards charging the highest interest rates, you may not be as rich as you think. Cash back cards are charging interest rates of 17.70 percent on average versus an average credit card interest rate fee in the low 16s.
The list of places you can use rewards may look impressive but will you ever use these services? More than half of rewards go unused. Travelers are more susceptible to signing up for unused rewards because travel services are not used as often as, say, your favorite local restaurants or grocery store. Typically when people change their behavior to use rewards, it costs them more money. Consider Air Miles Andy who takes the longer trajectory of every trip in order to earn more air miles, but loses money by ignoring the opportunity cost of the work hours he is missing. Are you going to pay more for the hotel room or dinner at a place you do not typically do business with? To ensure you get value from your rewards card, choose cards with partnerships with services you already, or plan to, use.
Choose cards with the most flexible expiry policy. Airlines and other travel loyalty program providers have earned a reputation for changing their redemption policies. Air Miles famously expired all pre-2012 miles by January 2017, and then changed its mind. Prioritize cards that have no mileage expiry date and/or offer the option of transferring mileage and other reward points to other airlines, frequent flier and reward programs.
And remember, if you did give into summer folley and never used those rewards, you may be able to give them to charity rather than let them expire.